We’re above average!
So says the Mercatus Center at George Mason University’s in its annual “Ranking the States by Fiscal Condition” report.
Based on states’ 2015 financial statements, Florida ranks first as the most fiscally healthy state, while New Jersey ranks the lowest. Nevada, in 14th place, ranks well overall, though other Mountain West states – Utah, Wyoming, and Idaho – rank higher, as this Mercatus Center table shows:
The fiscal health ranking of America’s 50 states rests on each state’s cash solvency, what and how much it taxes, the scope of public services it provides, its ability to attract businesses, and long-term debt, among other things. What are the biggest detractors from fiscal strength? The Mercatus report explains:
Growing long-term obligations for pensions and healthcare benefits continue to strain the finances of many state governments, and revenue drawn from volatile sources like oil production continues to threaten the fiscal health of top-performing states. Both trends highlight the fact that state policymakers must be vigilant to consider both the short-term and the long-term consequences of their decisions.
Maryland, Kentucky, Massachusetts, Illinois, and New Jersey, all of which rank in the bottom five states, have relatively small amounts of cash in reserve, coupled with large debt obligations. That same ratio is problematic for millions of American households when their income takes a hit.
The metrics between states vary widely, creating a map that looks like this (dark teal indicates fiscally healthy states, lighter teal indicates moderately healthy states, and shades of orange indicate states that are not in great shape):
On a short-run basis, Mercatus found that Nevada has between 1.98 and 3.39 times the cash needed to cover short-term obligations. Revenues exceed expenses by 6 percent. These are strengths, relative to other states.
Source: Mercatus Center
Total primary government debt is $3.51 billion, or 2.9 percent of state personal income, which is lower than the U.S. average.
Nevada’s long-term liabilities are 47 percent of total assets, though, or $1,967 per capita, a debt increase over both 2013 and 2014. Additionally, Nevada’s trust fund solvency – aka its “rainy day” fund balance – is ranked among the lowest in the country.
Unfunded pension obligations are $65.87 billion, or 54 percent of state personal income.
Note: This year’s Mercatus study also highlights how recent changes in accounting standards affect what states reveal on their financial statements. Due to the implementation of new government accounting standards, states are reporting more of their pension liabilities, which increases the average long-term liability metrics.